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Chapter 13: International Law

In chapter 5 at 5.6 we learned that international organizations may be a source of international law. In particular, we discussed briefly the International Court of Justice (ICJ), also called the World Court, the European Union (EU), and the North American Free Trade Agreement (NAFTA). There are also some concepts, treaties, and statutes that fit under the umbrella of international law; we will discuss a few here. They are sovereign immunity, the act of state doctrine, conflicts of law, the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO), and the Foreign Corrupt Practices Act (FCPA).

13.1 Sovereign Immunity

Sovereign immunity is best explained by an example. In the context of international law, sovereign immunity means that Country A is not subject to lawsuits in Country B’s courts unless Country A agrees to be sued there. It typically arises when Country A is alleged to have committed a wrong within Country B’s territory. In the United States, there is a specific statute that addresses sovereign immunity. It is the Foreign Sovereign Immunity Act (FSIA),[1] which Congress passed in 1976; in essence, the act provides that a country is immune from lawsuits in US courts unless the country agrees to being sued in the United States. Immunity under FSIA does not apply to certain types of lawsuits, including torture, extrajudicial killings, hostage-taking and certain terrorist acts. Furthermore, foreign states may be sued when a plaintiff’s claim is based on commercial activity, an act performed in connection with commercial activity, or an act having a direct commercial effect in the United States carried out by the foreign government.

13.2 Act of State Doctrine

The act of state doctrine is related to sovereign immunity, but differs in one significant way. Assuming the same Country A / Country B hypothetical, the act of state doctrine typically arises when Country A is alleged to have committed a wrong within its own territory. In this case, a party is not permitted to question Country A’s act in a lawsuit in a Country B court. The act of state doctrine sometimes arises in cases of expropriation. Expropriation is the taking of private property by a government, usually based on Marxist principles of redistribution (or “spreading the wealth”). Expropriation is a risk of foreign direct investment because of the act of state doctrine. How so? If a party’s property is expropriated by Country A in Country A’s territory, the act of state doctrine precludes the party from suing Country A in a Country B court (the party’s home country).

13.3 Conflict of Laws

In the context of international law, conflict of laws means differences between the laws of two or more countries that have a legal interest in a case. In international business transactions, prudent parties will negotiate a “choice of law” provision in their contract. A choice of law provision provides for which country’s (or which state’s) laws will apply in the event that there is a dispute between the parties regarding the contract. Parties also usually include a “choice of forum” provision that identifies the court where any lawsuit must be filed.

13.4 GATT and WTO

GATT is a multi-country treaty that was adopted in 1994; and the WTO was established shortly thereafter. The WTO is an international organization that deals with the trade rules between countries. The WTO assists in facilitating agreements between its member countries—159 of the world trading nations (as of 2013). The WTO states that its main goal is to assist producers of goods and services, exporters, and importers in conducting business. GATT covers international trade in goods. The workings of GATT are the responsibility of the Council for Trade in Goods—known as the “Goods Council”—which is made up of representatives from WTO member countries.

The FCPA, which was passed by Congress in 1977, deals with bribery of foreign officials.[2] It applies to individuals who are US citizens or residents as well as to any organization or company organized under the laws of the United States or its states. In general, the FCPA forbids corrupt payments to foreign officials for the purpose of obtaining or keeping business. In addition, other federal statutes such as the mail and wire fraud statutes may also apply to such conduct. In 1998, the FCPA was amended by the International Anti-Bribery and Fair Competition Act. This act made certain changes to implement the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which was negotiated under the auspices of the Organization for Economic Cooperation and Development.

The FCPA is extremely controversial in the business community because in many companies, bribery or practices similar to bribery are a customary, part of doing business. The inability to make such payments may hamper or even prohibit involvement by US firms in certain markets.

The US Department of Justice is the chief enforcement agency of the FCPA. It is vital to keep in mind that activities that are legal (and even expected) in certain foreign countries can be illegal for US-based entities operating abroad. Due to the ubiquity in certain regions of practices banned by the FCPA, and the dire consequences for violations, it behooves US firms seeking to do business in foreign markets to become familiar with the anti-bribery statute and to ensure that their activities in those markets do not run afoul of the FCPA’s restrictions.